This thesis investigates three issues in the context of cross-border VC investments: how cross-border VCs impact innovation, how social connections affect cross-border VC investments, and how climate risks affect cross-border VC investments.
The first empirical chapter examines the impact of cross-border VCs on investee company innovation. This study hypothesizes that, comparing to domestic VCs, cross-border VCs exhibit less emotional attachment to their investee companies, employ distinct risk management mechanism, and leverage diverse knowledge and resources from local environment to foster innovation within investee companies. Utilizing the unique merged international VC investments and patents databases, the results suggest that there is no significant difference innovation impact between cross-border VCs and domestic VCs. Furthermore, the analysis reveals that most of the cross-border investments are from high innovation countries to low innovation countries, and then the selection process induces the bias on estimates. Therefore, this study employs Heckman two-stage analysis to mitigate the selection bias and the estimations reveal that cross-border VCs significantly increase investee company patent counts and citations. The results are robust across various measurement windows and subsamples.
The second empirical chapter investigates the role of social connections in the cause and consequences in cross-border venture capital investments. Implementing a novel proxy of Social Connectedness Index, extracted from Facebook friend connections, the results indicate that cross-border VC investors are more likely to invest in portfolio companies located in socially connected countries. However, while such social ties reduce the likelihood of successful exits, they also enable portfolio companies to access diverse resources and knowledge spillovers, enhancing their innovation performance following cross-border VC investments. Furthermore, this study employs instrument variable and Heckman two-stage model to address the potential selection bias and concerns. The findings are robust to a variety of tests and econometric approaches for dealing with endogeneity problems. The findings underscore the role of geographical structure of social networks between countries in cross-border venture capital decisions contributing to the economic sociology and spatial economics literature.
The third empirical chapter study investigates the impact of environmental factors on VC investment behaviour and performance. Integrating climate risk indicators from multiple data sources, this study assesses the role of climate risk in shaping cross-border VC investment decisions and outcomes. The results indicate that due to salience bias, VCs from high climate risk country are more likely to invest cross-border. In addition, physical risks and transition risks reduce the likelihood of successful exits for cross-border VC investments. Moreover, stacked difference-in-differences (DiD) strategy, Heckman two-stage analysis, Cox hazard model are used to address endogeneity and ensure robust causal inference. Results are consistent and robust using alternative proxies and various tests. The findings provide new insights into the relation between climate risk and cross-border VC activity, demonstrating the importance of environmental considerations in cross-border investment strategies and outcomes.
